IO

Innovation? It implies a cultural change

Giuseppe Donvito, Partner of P101 Ventures | January 10th, 2018

Forget open innovation and the other buzzwords: in order to seriously innovate, Boards must plan and activate a reorganization. And use M&A operations as a means to acquire new technologies

“Innovation” is a mantra for contemporary managers. Everyone talks about it, everywhere: whether they work in traditional or new industries, companies with a consolidated position must agree to become innovative, since this is closely linked to the ability to cope with the tech disruption. In this context, the world of Venture Capital is frequently referred to as the bearer of innovation by definition.

However, we need to understand what innovation is and when it really can boost business. For a VC fund, innovation is certainly a pervasive concept, much more so than what is expressed in academic and traditional environments: in our experience, open innovation is a more nuanced category of innovation that leads to true disruption. Let me explain: as a VC we finance start-ups and scale-ups that are innovative from the very first moment, they have “lean” and relatively simple organizational structures, at least up to a certain point. Hence, within certain limits and by their very nature, these companies can experiment and redirect their business model, if necessary – which means they can proceed by trial and error. However, if the possibility of making mistakes is inherent in the concept of innovation, we should not believe that innovation is done by “improvising”.

On the contrary, there are some rules one should keep in mind by which innovation becomes a real part of the entire organizational structure and production process, and works as an accelerator for the company. Here they are:

  • Innovation is not an exercise or a best effort process. Rather, it is a top-down cultural approach. As noted by the NACD, the US National Association of Corporate Directors, corporate innovation comes from leadership and in particular: “a technology and innovation review should be part of your annual, board-level strategy or product review. Examining current technologies and innovations, as well as early-stage technologies and innovations that management believes to be part of the future, are two key behaviours to build as a part of your board’s robust ‘innovation system.’” This simply means that innovation is not an esoteric concept and large companies cannot deal with it as a “random” process. Innovation must be carefully planned, for instance, just as companies do with sales process.
  • We are all aware that innovation means making important organizational changes to a company, such as refocusing human resources on different tasks or even downsizing the workforce; however, if this does not happen, as shareholder I would ask myself whether the company’s Board of Directors is preferring a short-term policy to a long-term one.
  • Innovation can be purchased through M&As: a company can innovate by acquiring external companies, such as those in VC funds. To this purpose, corporates can develop a dedicated Innovation M&A strategy to acquire capabilities, products and technologies that can unlock new sources of growth and revenues. Cultural adoption will be a key driver for the successful integration of such deals. Many already know this and have put it into practice: just to mention Deloitte, “Globally, companies spent $291 billion in 2016 on disruptive innovation related M&A deals.”

 

A separate chapter is that of Fintech, an industry in which the traditional big players, such as Goldman Sachs and Credit Suisse, have started a series of acquisitions. This wise trend is going to last for long, as noted by WhiteCase: “Fintech has evolved from being a disruptive threat to a major opportunity for financial institutions. The possibilities for dealmaking and M&A are almost limitless.” Deals that, for those who play the part of the lion, often turn into a life-line for business.